TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Interview with Alan Jones
2GB

Thursday, 6 November 2003
7.15 am

SUBJECTS: Interest Rates, Economy, Dollar, Housing

Finance, Banks, NSW Poker Machine Tax Rebate, Marginal Tax Rates

JONES:

Treasurer, good morning.

TREASURER:

Good morning Alan.

JONES:

Interest rates are a surprise to the financial markets, a surprise to Peter

Costello?

TREASURER:

Well look, I follow the debate very closely and I talk to the Bank about

these things so, it’s not really worth going into the way in which…

JONES:

I just asked that because our listeners don’t, just to clarify, you

don’t have any say in any of this?

TREASURER:

Oh sure, let me make this clear, the Reserve Bank is independent and the

Reserve Bank makes these decisions, they’re not Government decisions.

We put it on an independent basis and it makes the decision solely itself

now, as I was saying earlier you follow the debate you get some idea of what

they might be thinking but it is an independent board and it makes the decision

itself.

JONES:

And there is talk that there could be another rise over the next 6 months,

even as early as next month?

TREASURER:

Well look Alan, you will find that people go out and make their predictions

and I have said this before, I have watched some people predict six of the

last one interest rate rise.

JONES:

Yes six of the last one interest rate rise I agree. But however, immediately

this occurred the Australian dollar went to over US71c, what do you think

the farmer is saying today?

TREASURER:

Well, I know what the National Farmers Federation…

JONES:

They are angry

TREASURER:

…said, yes, they were very critical of the decision, they were critical

of the decision because obviously they are being hit by a high currency at

the moment and that’s a point that I understand very very well for the

farmer. The second thing is, although some parts of the drought have broken,

the drought has not broken throughout all of Australia…

JONES:

Sure as hell hasn’t, absolutely, so they have got debt as well to service.

TREASURER:

Yes, well, there is a view in some circles that the drought is completely

over, it is in some areas, but it’s not in other areas and I think if

you happen to be in one of those drought areas, you are still doing it really

hard.

JONES:

It seems extraordinary though doesn’t it, we go through this cycle

over and over again, and acknowledging that we most probably still got the

lowest interest rates in 30 years and great credit to you for your economic

management in that, but none the less you get economic growth to about three

and three quarter per cent, you get excited that means more revenue for the

Government, more income for the wage and salary earner and more jobs for the

people out there and yet you suddenly say hang on hang on we got to put the

breaks on now and put the price of money up.

TREASURER:

Well, you said it, the reason why I think there is a lot of focus on yesterday’s

decision is that interest rates haven’t moved for fourteen months, that

is very very unusual, in fact probably more, I think it was back in June of

last year, very very unusual that you get a period without that movement.

The second point to bear in mind is, you see an interest rate with a six in

front of it, it is historically low and I think there are some people that

think, oh well maybe interest rates have always been at six per cent, well

Alan, even under our Government the average interest rate has been 7.15 per

cent and of course under the previous Government the interest rate averaged

under Labor 12 per cent, so you have to, twelve and three quarter, yeah

that’s right, double, double the current rate.

JONES:

But if the United States, Japan and Europe, which is this case, have interest

rates lower than ours, then our currency could in fact go even higher and

that continues to cause problems for our exports and we come back to the old

farmer.

TREASURER:

Well, as I was saying earlier the mortgage rate is still an historic low

in Australia. Now you come to Japan and the United States, these economies

have been in recession and because they are, both of those economies went

into recession, in Japan’s case a very deep recession, in order to try

and kick start the economy interest rates were put low and they are recessionary

economies. The US is moving out of recession now and so it’s moving

on, Japan maybe, I don’t know, but the thing about currency movements

I do want to say something about that, is that the Australian dollar went

very low, you can recall in 2000 and 2001 and that’s mainly because

America was over valued, a lot of that has come off and the Australian dollar

has gone back up, and I make the point, I always have, that, that makes it

tougher for our exporters and our farmers are exporters and it makes it cheaper

for our importers.

JONES:

…(inaudible) pushes the debt up.

TREASURER:

When the dollar was low incidentally and there was a lot of criticism in

the press at the time Alan, I can remember the press were fulminating against

that, it was actually a very good thing for our exporters…

JONES:

My word it was.

TREASURER:

…it helped them, it helped them through a time when, when a lot of the

world went into recession.

JONES:

This all seems to though derive, yesterday’s decision, from the Friday

figure of a seven and a half per cent increase in building approvals in September

when the forecast was for one per cent. Now I guess the concern the Reserve

Bank had was that this accelerates the level of debt as more and more people

are seeking to buy and every person who buys a house, normally on their credit

card then buys the washing machine and the kitchen wear and the curtains and

so on. Aren’t there other ways though of slowing that down rather than

increasing the price of money? Do you think for example that people have too

easy an access to credit? I mean on credit cards alone they post them out

to school kids.

TREASURER:

Well I do think that one of things that has led to increased borrowing is

the willingness of the banks to lend money against home equity. There seems

to be quite a new phenomena, you’ve seen them advertised on TV, the

home equity loan the bank writes to you and says oh “look, the value

of your home has gone up, would you like to draw down against it?” In

fact, they send you letters. I know this because they have sent me letters

saying “would I like to borrow against my home” and that is a

new product and banks have been very free with finance particularly in relation

to those new instruments. I do think that finance is very easy and finance

is cheap. As I keep saying by historical standards, interest rates are very,

very low. I just want to make this point because I make it over and over and

over again to people that are thinking about taking out a mortgage. You have

got to remember if your mortgage has six in front of it, it’s a historical

low. There are some young people that think six per cent is a normal interest

rate. Well, I can remember when I bought my first home it was seventeen and

a half per cent.

JONES:

Absolutely, I agree with you.

TREASURER:

Seventeen and half per cent. And so I say to people when you are taking out

a twenty five or thirty year loan just leave some cushion in there because

if you see a mortgage interest rate with a six in front of it, it’s

a historical low and over twenty or thirty years you don’t have thirty

year lows.

JONES:

But the flip side of this of course with the housing as I mentioned to you

is stocking the house up with its furniture and fittings. Average credit card

debt per household has now trebled in 7 years from $1,601 in June 1996 to

nearly $5,000 in July 2003. I mean we’ve got one and a half, one and

three quarter million people here holding credit and charge cards, some hold

many. Do you have a concern about the easy access that people have independently

of their credit worthiness to credit cards.

TREASURER:

Well, I would say to the credit providers and principally this country, their

banks, that the banks should properly assess people. I think it’s a

matter between a customer and their bank and these banks ought to properly

assess people…

JONES:

It doesn’t happen

TREASURER:

…because, well who knows what these bankers think.

JONES:

You must call them from time to time and take the whip out don’t you?

TREASURER:

Well, I make these points that we expect the banks to be responsible and

their lending practices. We had a regulator go through the banks recently

to stress test them. The regulators said that the banks were in fine condition

but I would re-emphasise the point that where a credit provider is allowing

credit to somebody they have an obligation to properly assess their credit

worthiness.

JONES:

Treasurer, the poker machine tax issues in New South Wales. You approved

the GST rebate in July 2000 to ensure that clubs weren’t going to be out of

pocket following the introduction of the GST. Then there was a lot of public

pressure here, as a result of the fact that was going to end next 30^th

of June next year and Treasurer Egan made a request to you, did he not, for

the rebate to be continued for clubs with under $1 million in revenue. Now

under the cover of the Melbourne Cup, you actually did say to the New South

Wales Treasurer, well hang on if it is going to go to some it should

go to everybody. What’s the background of that? A press release came

out on Melbourne Cup Day. No one knew anything about it. Is Treasurer Egan

a bit embarrassed about the fact that the poker machine clubs are going to

get the GST rebate?

TREASURER:

Yes, well he seems to be very backward about this particular issue for reasons

which I can’t understand. You have properly recited what happened. When

the GST came in, because GST was going on gambling, we said to the State Governments

you have got to reduce your gambling margins. And in New South Wales that

involved giving the clubs an actual rebate, because they weren’t applying

tax at low levels of turnover. And the New South Wales Government said, yes,

we will give them a rebate for four years and the Commonwealth said fine,

here’s the reimbursement for that. But when the four years were up,

the New South Wales Government first, apparently didn’t want to keep

the rebate at all, and then said, oh well, we will allow the rebate for the

smaller clubs but not the larger ones. I pointed out to the New South Wales

Government that we would not reimburse them if they didn’t pay it to

the clubs. But if they decided to pay it to the clubs they would be reimbursed

by the Commonwealth. I made that very clear to them. I wrote to Treasurer

Egan on Friday of last week and I said, all right, you have now agreed to

pay it to the smaller clubs you will be reimbursed, if you agree to pay it

to the larger clubs as well, you will also be reimbursed. By the way…

JONES:

And he, and he didn’t want to pay it to the larger clubs?

TREASURER:

Well, as far as I know, he has not yet agreed to pay it to the larger clubs.

The moment he agrees to pay it to the larger clubs, that is, the New South

Wales Government agrees to pay it, they will be reimbursed. But if the New

South Wales Government does not agree to pay it, there is nothing to reimburse

them.

JONES:

But am I right in saying that, Treasurer Egan, with all the problems that

clubs are facing, he did not even make you a request?

TREASURER:

No, he did not make a request in the first analysis for any clubs and he

has still not made a request for those clubs above one million. He has still

not made it.

JONES:

Even when the Commonwealth Government is quite prepared to give, to continue

the GST rebate after June 30, 2004?

TREASURER:

Even though I wrote to him last Friday and said, you have still not made

a request. You will not be paid if you are not going to return it to the clubs.

But if you decide to return it to the clubs and request reimbursement you

will get it. I am still waiting for that request.

JOURNALIST:

Treasurer can I shift the focus a bit, that is extraordinary. Tax, just back

to this tax thing, our highest tax bracket, what are you going to do about

these poor coots out here on sixty something thousand and suddenly find themselves

on the highest tax, $62,000, highest tax bracket in the country. I mean you

can’t save in that environment can you?

TREASURER:

Well, I have said before, and I will say it again, that I think the top rate

cuts in at too low a threshold. The threshold at the moment is $62,500 and

when we came to office it was cut in at $50,000 and when we were introducing

the New Tax System, I wanted to lift that to $75,000 and Labor opposed it.

And as a consequence of that we were only able to lift it from $50,000 to

$60,000. We have since increased it a little bit to $62,500 but my original

plan was to take it out to $75,000 and if we had been able to take it out

to $75,000 it would have been higher than that today. But I don’t think

$62,500 is the right level, back in 2000, I thought $75,000 was the right

level…

JONES:

Right.

TREASURER:

…so it should be higher than that today. But see you have got to remember

this Alan, people ask me about this, they say why don’t you do this

or why don’t you do that with the tax system…

JONES:

(inaudible)

TREASURER:

…let me make this point, the tax system is contained in legislation.

It cannot be altered except by an Act of Parliament – a lot of people don’t

know this – and to get an Act of Parliament through, you have got to not only

pass it through the House of Representatives which has a Liberal/National

majority but you have got to pass it through the Senate, which has a Labor/Democrat…

JONES:

I understand that. Listen we have got to go to the news. You are talking

to a very sophisticated electorate here, they do understand that. But thank

you for your time, we need to talk again.

TREASURER:

Thanks very much Alan.